Commuters walk past a bank sign along a road. PHOTO: REUTERS
ISLAMABAD: The government is likely to allow National Bank of Pakistan (NBP) to increase its capital in Bangladesh operations by remitting $10.9 million with the conditional plan of partially closing its branches.
The Bangladesh operations of NBP had suffered due to non-performing loans despite injection of millions of dollars by previous governments. The State Bank of Pakistan (SBP) had backed the plan of remitting money to increase the capital in Bangladesh operations but said the injection of money should be linked with partial closure of its branches.
The Central Bank of Bangladesh has advised that the capital should be increased by $10.9 million in NBP’s Bangladesh operations to meet the minimum capital requirement prescribed by the central bank for the year 2019 and to create some cushion for the equity in 2020.
Sources told The Express Tribune that NBP had approached the SBP for seeking permission for the remittance and injection of $10.9 million into its Bangladesh operations for the purpose. In order to liberalise and deregulate the country’s economy, the federal cabinet in its meeting held on May 16, 2001 allowed equity-based investments abroad by resident Pakistani companies on the basis of set criteria.
Criterion VII stipulated that cases of private sector would be dealt with by the SBP and decided by the Economic Coordination Committee (ECC). However, it was later amended by the ECC on August 29, 2002 when it decided that proposals of up to $5 million would be approved by the SBP.
NBP started its operations in Bangladesh in 1994 with the opening of a branch in Dhaka. Branches were subsequently established in Chittagong, Sylhet and Gulshan.
The operations, however, started facing problems on account of NPLs, for which provision of $151 million was made in 2013 and 2014. Additional capital was also made available several times, most notably in 2014-15, when $65 million was injected after approval of the ECC.
The Central Bank of Bangladesh has now advised NBP Bangladesh operations to meet the minimum capital requirement for the year 2019. The external auditors have also reported a capital shortfall of $7.33 million based on the financial results on December 31, 2019. The board of directors of NBP has accordingly approved injection of $10.9 million for its Bangladesh operations.
SBP has carried out a detailed analysis of the proposal and it is of the view that NBP’s Bangladesh Operations are neither commercially viable nor sustainable. However, an immediate closure, merger or sale of the banking license is also not feasible. SBP has, therefore, supported NBP’s proposal to inject additional capital subject to some conditions.
SBP is of the view that NBP’s decision to inject additional capital in Bangladesh operations is a business decision and its board is fully responsible for managing all the associated risks.
It is of the view that NBP must implement the proposal for partial closure of its operations within the communicated timelines (closure of Sylhet and Chittagong branches in 2020 and Gulshan branch in 2021).
It further says that NBP must implement a strategy, approved by its board, for partial closure and effective recovery of NPLs in Bangladesh. It said that NBP must deploy the additional capital in a prudent manner in order to avoid any further capital injections from its head office.
In this regard, approval of the ECC has been sought, which is scheduled to meet Wednesday.
Published in The Express Tribune, June 10th, 2020.
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